China and India are spearheading a geopolitical realignment in the emerging world order to move it away from US-led Western dominance.
That process has gained momentum with deepening faultlines between the US and its European allies over the ongoing US-Israel war in Iran.
President Trump has expressed his frustration at Britain’s Prime Minister Keir Starmer’s reticence to deploy the UK’s navy to counter Iran’s blockade of the Strait of Hormuz, through which a fifth of global trade passes. France and Germany too are unwilling to get involved in a war started by Trump.
The geopolitical standoff has prompted Beijing and New Delhi, who have not joined the chorus of condemnation against Tehran following its blockade of the Strait of Hormuz and retaliatory strikes against neighbouring Gulf states, to close ranks.
India has now eased restrictions on Chinese investments in select sectors in a move that marks a reset of economic ties between New Delhi and Beijing after six years of fraught relations.
India’s Foreign Direct Investment (FDI) policy has been amended to allow Chinese companies to invest in sectors such as electronics, capital goods, and renewable energy products.
The thaw follows strained relations in the wake of the deadly border clashes in the Himalayan region of Galwan in 2020, which resulted in 20 Indian and four Chinese troop fatalities.
The fallout saw a tightening of security clearances for Chinese investments in India.
Viewed through a geopolitical lens, the reset in Sino-Indian ties is a reflex to Trump’s unilateral global tariff hike of August last year which caused major supply chain disruptions and a dip in investor confidence. India was slapped with a 50% levy on goods entering the US, and a further 50% punitive tax for buying discounted crude from Russia.
The tariff hike injected a new urgency in bilateral engagement between the Asian giants, with India’s Narendra Modi visiting China after a gap of seven years.
Direct flights between the two countries were restored and visa procedures eased for Chinese businessmen travelling to India.
With the Indian cabinet approving changes to the foreign direct investment policy, investments from “Land Bordering Countries” (LBCs) are poised to pick up.
While Pakistan, Nepal, Bhutan, Bangladesh and Myanmar share borders with India, the restrictions on investment primarily targeted China.
Prior to the tightening of rules in the aftermath of the Galwan skirmishes, investments from China required no prior approval from the government, and proceeded along what is known as the “automatic route.”
Under the new rules, Chinese companies will have their investments processed within 60 days, as long as they invest in companies owned by Indian shareholders.
Chinese companies can own up to 10% stake in Indian corporates without prior approval from the Government of India.
But the economic detente is premised on stable bilateral relations. Sino-Indian relations remain potentially volatile despite the normalisation symbolised by the 2024 agreement on border patrols in the disputed territory and troop disengagement.
The rapprochement gained fillip when Modi and China’s Xi Jinping met on the sidelines of the BRICS summit in Kazan in October 2024. The border accord reached between China and India may be seen as a response to shifting global geopolitics and Trump’s vision of America as its main driver. His aggressive tariff policy acted as a catalyst to Sino-Indian rapprochement.
A pickup in ties between US and Pakistan may also have spurred China and India to move closer. The reception accorded by the White House to Pakistan’s Shehbaz Sharif in September last year may not be viewed benignly by Beijing, given Islamabad’s standing as a key ally, or India, where the memory of Operation Sindoor is still fresh.
India is also acutely conscious of China’s looming presence as a global manufacturing hub and its own reliance on Chinese supply chains in key sectors such as critical minerals and heavy machinery, as pointed out in the India Economic Survey 2024 - 2025. Establishing economic and diplomatic bridgeheads with China, therefore, makes sense from the vantage point of Indian industries dependent on Chinese inputs.
From China’s standpoint, India offers market size and a burgeoning middle class with disposable income that offers a steady market in a shrinking global export landscape.
But the geopolitical dimension of Sino-Indian ties is key in Beijing’s calculus. The recent call by Chinese Foreign Minister Wang Yi to “support each other's BRICS presidency over the next two years” suggests a geopolitical alignment between the two Asian economies aimed at leveraging their collaboration to boost the clout of the Global South as a counterweight to the Western powers led by the US.
China is focused on the “rejuvenation of Asia” and sees India as a key partner in achieving that geopolitical objective.
The current thaw in economic ties, marked by the lifting of restrictions on Chinese companies keen to invest in India, symbolises an act of good faith by New Delhi.
But that is contingent on the Himalayan border staying calm to ensure the free flow of commerce between the two neighbours that, to quote the Chinese foreign minister, “enjoy profound civilisational ties.”
Venu Menon is a senior journalist based in Wellington. He was Consulting Editor of The Hindu in India prior to moving to New Zealand